Preserving Retail Mix

Lydia DePillis reports on efforts to further constrain the quantity of bars and restaurants allowed to open in the District of Columbia:

For the last several months, a “retail mix committee” of Advisory Neighborhood Commission 6B has been thinking about the problem: How to retain neighborhood services like pet shops and dry cleaners, when bars and restaurants can pay much higher rents? The Barracks Row zoning overlay limiting eating and drinking establishments to 50 percent of street frontage only covers the blocks south of the expressway; most of the core commercial zone can have as many liquor licenses as it can hold.

Last night, Commissioner Norm Metzger laid out next steps. Starting in December, a series of public meetings will contemplate various potential remedies. First up: A moratorium, which would set a cap on the total number of licenses allowed. It’s the most blunt instrument neighborhoods have at their disposal to limit the impact of alcohol, and many have taken that step; Dupont Circle, Georgetown, Adams Morgan, and Glover Park all have caps in place. Councilmember Jim Graham recently raised the idea of slapping a moratorium on U Street.

In my view, the whole conversation around retail mix in this city (and most likely other cities around the country) desperately needs a little bit more economic literacy. A hard cap on liquor licenses is a highly un-optimal way to ensure the availability of dry cleaning services in a given neighborhood. The issue is that for a business to operate, it needs to be able to operate profitably. So in an area where land is valuable, you’re going to need a business whose margins are high enough to cover an expensive rent. Perhaps dry cleaning customers are highly price sensitive, and thus it’s not possible to operate a high-margin dry cleaning shop in a high rent commercial corridor.

My preferred way to deal with this would be to open up more square footage to potential retail use. Maybe the parallel stretches of 7th Street and 9th Street should be opened up to retailing?

But if people are committed to the idea of increasing the number of dry cleaners in the Barracks Row area and also committed to not increasing the overall quantity of retail square footage in the Barracks Row area, then the right thing to do is to offer an explicit subsidy for dry cleaners (or pet shops or whatever else) perhaps paid for with an explicit tax on disfavored activities like the sale of liquor. In policy terms, the advantage of an explicit subsidy is twofold. One, you guarantee that you’re getting what you want—if you make a deal with a businessman to get him to open a dry cleaning shop in exchange for a subsidy, you will in fact get a dry cleaning shop. A mere crackdown on liquor licenses risks having empty storefronts or other deadweight loss. Two, a liquor license moratorium is both a subsidy to non-food/drink businesses (via the mechanism of lower rents) and also a subsidy to incumbent license holders (via the mechanism of restricted competition) and it’s inefficient for the community to create a superfluous subsidy for incumbent licensees.

In political terms the nice thing about people recognizing the preferability of doing things through explicit subsidies is that the neighborhood might become more cognizant of the price of its choices. One of the dangers of pursuing policy objectives through indirect regulatory mandates is that people can easily become confused about the cost of the policies.